Most brands face challenges in understanding the genuine costs associated with maintaining a first-party (1P) seller relationship with Amazon. In essence, a 1P relationship involves a brand selling its product to Amazon, which subsequently resells the inventory on their platform.

The costs of a 1P relationship can be elusive, given the limited visibility 1P sellers have into their data on Amazon.

Better Brands explains the true costs of selling 1P on Amazon.

Here’s a cheat sheet of what should be considered to calculate the true costs of being an Amazon 1P seller. The true costs of being an Amazon 1P seller, as discussed below, are based on both Amazon P&L and off Amazon P&L costs.

Amazon P&L Costs

There are three main costs included in Amazon P&L:

1. Wholesale/PPM (Pure Product Margin): First is the wholesale rate (or PPM), or the cost a brand sells an item to Amazon. In a 1P seller relationship, Amazon will buy your inventory at the wholesale rate. For example, if the retail price of the unit is $100, then Amazon could pay you $80 for that unit, which would be the wholesale rate.

2. Net PPM: Second is the net PPM, or all the operational items that it takes to operate on Amazon’s platform. If Amazon paid you a PPM of $80 for your product unit, they will deduct operational item costs from that $80.

3. Operating Margin: Thirdly, operating margin, or the Net PPM plus “other” operational costs. Some examples are Chargebacks, Shortage Claims, FCF Initiatives, and Annual Vendor Negotiations (AVN). The total of these operational costs would be $15.20, making the total after the operating margin $47.40.

Off Amazon Costs

There are two main types of off Amazon costs: off Amazon P&L costs and miscellaneous costs.

Off Amazon P&L Costs:

1. Agency fees: advertising, content management, consultants, data sources, etc.
2. Operations: breaking down pallets and re-labeling for Amazon orders, shipping to multiple Fc’s in LTL shipments each week, erratic orders volumes week to week, etc.
3. MAP/Legal Compliance
4. Data Providers: brands often pay for different data providers such as Stackline, Helum10, Keepa, Jungle Scout, Profetero, 1-Click Retail, etc.
5. Employees: the cost of how many people are needed to run Amazon that can be reallocated to other things.
6. Internal headcount costs
7. Software costs

Miscellaneous Costs:

1. Yearly Amazon Vendor Negotiations (AVN)
2. Always on Negotiations (AoN) to fund an off-Amazon price match
3. Suppressed CRaP items
4. Adapting your business to meet Amazon’s systems

The off Amazon P&L costs along with the miscellaneous costs also lower the overall wholesale rate you get for the product you sold to Amazon.

1P vs. 3P Seller Partner Comparison

Although the actual total costs and net profit for both Amazon 1P and 3P are about the same in the end, the 3P partner relationship is much less complicated and has fewer additional costs than 1P, such as the time and energy it takes for Yearly Amazon Vendor Negotiations (AVN) and Always on Negotiations (AoN).

Better Brands is the one of the largest 3P seller on Amazon. With a 3P seller partner like Better Brands, there’s a lot less to manage and worry about, so you can easily calculate your brand’s true costs and set your company up for long-term ecommerce success.

Know Your Brand’s True Costs on Amazon With Better Brands.

There could be alternative models and selling strategies on Amazon to make your brand more profitable and keep your price. What each brand needs to do is first calculate your true costs as an Amazon 1P seller and discover what it costs you. We hear from most brands that partnering directly with Amazon has brands feeling overwhelmed. Without the right internal resources, the ecommerce team quickly feels incapable of tackling everything they are asked to and have to do.

As the world’s premier ecommerce accelerator, Better Brands has all the resources to empower your brand with data and help you drive marketplace revenue through our ecommerce equation. We help brands avoid paying multiple agencies to deal with each area of your business such as advertising, data resources, content management, and more.

Protect your brand and understand your 1P actual relationship costs with Better Brands. Contact us.